Sector Snap: EU chatter slaps US plastic
Shares of US card companies dip on report of new EU cap for fees
NEW YORK (AP) -- Credit card companies took a hit Wednesday on a published report suggesting the European Union will try to cap lucrative processing fees.
Shares of American Express Co. slid 3.5 percent in early trading, before it posts second-quarter earnings after the closing bell.
The Financial Times, citing a draft proposal, reported that the EU may introduce a ceiling on charges for all consumer debit and credit card transactions.
According to the report, the ceiling would be set at 0.2 percent after a two-year transition period, nearly having EU debit card fees to 2.5 billion euros ($3.29 billion) from 4.8 billion euros, according to EC estimates. Credit card fees would be slashed to an estimated 3.5 billion euros from 5.7 billion euros.
Shares of American Express slumped$ 2.75 to $75.52
MasterCard Inc. shares declined $2.80 to $586.99, while Visa Inc. shares dipped less than 1 percent to $189.18. Discover Financial Services shed 26 cents to $49.38.
The declines occurred during broad increases across all major U.S. indexes.
Jefferies analyst Daniel Furtado maintained a "Hold" rating on American Express, estimating that the plan, if enacted, would trim the company's earnings per share by about 11 cents annually, but noting the company "should have plenty of levers to pull in the two years to implementation."
Analysts polled by FactSet expect the company to earn $4.79 per share this year, on average.
Janney Capital Markets analyst Sameer Gokhale estimated in a research note that the hit to American Express would be far greater, at $1.42 per share annually.
"This assumes that American Express does not offset the impact with a reduction or elimination of rewards accompanied by an increase in card fees, which would likely follow if the proposal were adopted," Gokhale wrote. "We estimate that eliminating roughly 100 basis points of rewards would offset the earnings-per-share impact of the lowered discount rate by $0.62 per share. Additional increases in fees would further reduce the impact of any changes in the fee structure."
The analyst has a "Neutral" rating on the stock.